Saturday, March 30, 2024

Small rise hailed as welcome sign

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The first rise in whole milk powder prices in two months was hailed as a welcome sign for dairy farmers after the latest GlobalDairyTrade auction.
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The rise was less than 2% and the overall GDT price index was unchanged from the previous auction but the outlook was more positive for the looming New Zealand spring milk production peak.

AgriHQ dairy analyst Susan Kilsby said Fonterra would lift WMP offerings in fortnightly auctions through August and September and if the price held over that time farmers could take heart the $4.25/kg payout forecast would stick.

Her own market-based prediction of the seasonal price was $4.48, down 6c because of recent weaker prices in the NZX Dairy Futures market, not the latest GDT outcome.

"Overall the result was better than recent auctions and market sentiment is starting to turn upwards.

"Fonterra should be able to sit on its payout forecast and it is on track to end its financial year on July 31 with product inventories lower than at previous balance dates."

In the GDT outcome ASB rural economist Nathan Penny detected a "tentative hint at a future lift in prices".

That was because tightening supply had resulted in unchanged prices.

"It's back to dairy market fundamentals as the focus turns post-Brexit to tightening global supply," he said.

"Our view is that tightening supply will be the key market driver this season and that should contribute to higher global prices."

Latest milk production figures from NZ and Europe were down, reflecting the reality of very low milk prices and farm losses.

"Our view is that tightening supply will be the key market driver this season and that should contribute to higher global prices."

Nathan Penny

ASB

"D-Day is approaching for our 2016-17 milk price forecast ($6/kg) and, in particular, as auction volumes on offer peak over the next three months or so."

Kilsby interpreted support announcements for dairy farmers by the European Commission as positive in the short term for world dairy prices and therefore the NZ farmgate milk price but more problematic in the longer term.

The EU announced Euro 500 million of extra support for its dairy farmers hit by quota removal and the trade ban with Russia.

"It is hard to measure what will happen and when but milk production rebalancing should occur more quickly than before.

"Further out, it means that inefficient European dairy farmers won't restructure or exit.

"The EC has also extended market intervention through until 2017 and that removes excess skim milk powder from world trade."

Fonterra viewed EU intervention (subsidised storage of SMP) positively for the supply side of the market because those stocks tended to be sold by private treaty or as food aid.

Dairy Companies Association chairman Malcolm Bailey said his members were looking for true recognition by European dairy farmers of the reality of world prices, so they would react accordingly.

Therefore, the latest EU support package was obscuring those market signals.

However, he would need to study the details before commenting further.

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